Abstract

http://ssrn.com/abstract=1935026
 


 



Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes


Rutheford B. Campbell Jr.


University of Kentucky - College of Law

September 26, 2011

Kentucky Law Journal, Vol. 99, p. 231, 2010-2011

Abstract:     
Corporate fiduciary duty standards are at an all time low.

Normative justifications offered to support lax corporate fiduciary duty standards, however, are weak. The justifications fail adequately to provide a persuasive reason for abandoning the economic principle widely applied in society, which is to hold actors accountable for the economic loss caused by their actions. Such accountability is thought to provide an incentive for efficient conduct.

This paper offers a critical analysis of two arguments for allowing corporate managers to act without accountability for the full economic loss caused by their mismanagement. The two arguments have been largely unchallenged and today garner broad support from influential quarters.

One argument is that corporate managers should not be accountable for a lack of due care in their decisions, and the justification for this position is a claim that eliminating the duty of care obligation provides an incentive for managers to take value creating risks on behalf of the company and its shareholders. The second argument is that corporate managers should be free to allocate and re-allocate unlimited amounts of corporate wealth among various corporate stakeholders, and this position is justified by a claim that such a rule provides an incentive for the investment of efficient levels of firm specific capital by the corporate stakeholders who provide monetary and human capital to corporations.

The normative justifications offered in support of these arguments depend on multiple, essential factual assumptions that not only are unproven empirically but also are counterintuitive and seem to get only more factually improbable when unpacked and analyzed closely. In short, these factual assumptions – which heretofore appear largely to have been accepted without question or analysis – amount to a thin reed and do not meet the burden that should be required of those who propose abandoning or broadly limiting corporate managerial accountability.

A strong version of corporate fiduciary duties provides an economic incentive for efficient and fair outcomes.

Number of Pages in PDF File: 28

Keywords: corporate fiduciary duty, corporation, fiduciary duty, critical analysis, lack of due care, allocate, re-allocate, corporate stakeholders

JEL Classification: K2, K20

Accepted Paper Series





Download This Paper

Date posted: November 28, 2011  

Suggested Citation

Campbell, Rutheford B., Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes (September 26, 2011). Kentucky Law Journal, Vol. 99, p. 231, 2010-2011. Available at SSRN: http://ssrn.com/abstract=1935026

Contact Information

Rutheford B. Campbell Jr. (Contact Author)
University of Kentucky - College of Law ( email )
620 S. Limestone Street
Lexington, KY 40506-0048
United States
Feedback to SSRN


Paper statistics
Abstract Views: 242
Downloads: 44

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.281 seconds